Don’t miss the latest developments in business and finance.

Home / Minimum Alternate Tax (MAT)
image

Minimum Alternate Tax (MAT)

About Minimum Alternate Tax (MAT)

Facebook IconLinkedIN Icon

What is Minimum Alternate Tax (MAT)

Companies can reduce their tax liability through various provisions of the Income-Tax Act, such as exemptions, deductions, depreciation, etc. There have been instances of some companies even managing to show nil taxable income despite making substantial profits and paying out dividends, thanks to the various tax concessions and incentives. The tax provision known as Minimum Alternate Tax (MAT) was created to bring these ‘zero-tax paying companies’ within the ambit of income tax and make them pay a minimum amount in tax to the government.
 
To improve accountability, and to ensure that no company avoided paying taxes, the Government of India in 1988 came up with the concept of MAT, which facilitates the taxation of zero-tax companies. Introduced by the Finance Act, 1987, MAT came into effect from assessment year 1988-89. According to MAT, such companies are liable to pay to the government by deeming a certain percentage of their book profit as taxable income.
 
How is MAT calculated?
 
Minimum Alternate Tax is applied when the taxable income calculated according to the I-T Act provisions is found to be less than 15.5 per cent (plus surcharge and cess as applicable) of the book profit under the Companies Act, 2013.
 
For example, a company with Rs 100 crore book profit is required to pay a minimum tax of Rs 15 crore (assuming 15 per cent MAT rate). If its normal tax liability after claiming deductions is Rs 10 crore (less than MAT), it is required to pay the remainder Rs 5 crore as MAT and use MAT credit equivalent to Rs 5 crore to pay tax in the future.
 
In September 2019, the government reduced the MAT tax rate from 18.5 per cent to 15 per cent while also slashing the corporation tax rate to 22 per cent from 30 per cent. MAT is levied on book profit, unlike normal corporation tax, which is levied on taxable profit. Also, no MAT would be imposed on new domestic manufacturing company (incorporated on or after October 1, 2019).
 
What is MAT credit?
 
MAT credit is the difference between the tax the company pays under MAT and the regular tax. It is allowed to be carried forward for a period of 15 financial years. MAT is similar to an advance tax. The concept of MAT credit was re-introduced in 2005 with a carry-forward mechanism of five years. This was subsequently increased to 10 years, and to 15 years in 2018.
 
According to the Central Board of Direct Taxes (CBDT), companies opting for the lower corporation tax regime cannot adjust their accumulated credits on minimum alternate tax (MAT) against their tax liabilities. 

Latest Updates on Minimum Alternate Tax (MAT)

Premium

Govt plans to remove minimum alternate tax on SEZs, boost exports

Govt also considering reducing duties on domestic sales

Updated On: 02 Jan 2020 | 8:03 PM IST
Premium

Rs 75,000-crore minimum alternate tax credit dilemma grips India Inc

Fifteen heavyweight companies have accumulated MAT credit in excess of Rs 1,000 crore each

Updated On: 02 Jan 2020 | 8:04 PM IST
Premium

Firms won't be allowed to adjust MAT credit if they opt for lower tax: CBDT

Experts say new tax rates not attractive to companies enjoying tax holidays

Updated On: 02 Jan 2020 | 8:04 PM IST
Premium

Firms opting for lower tax regime can't adjust accumulated credits on MAT

The ordinance to cut the corporation tax rate has said MAT provisions will not apply to a company which has exercised the option for a lower rate of tax

Updated On: 02 Jan 2020 | 8:04 PM IST
Premium

FM's tax cuts: Reduction in MAT to benefit IT companies in Gift City

They were to pay 18.5 per cent MAT so far, but will now have to pay 15 per cent MAT

Updated On: 02 Jan 2020 | 8:04 PM IST
Premium

Budget 2019: Finance Bill seeks to address carry over of losses, MAT norms

These two amendments were long-pending demands of industry and insolvency professionals

Updated On: 02 Jan 2020 | 8:04 PM IST

Budget 2018: FinMin may tweak Minimum Alternate Tax norms to boost industry

There is a need to revisit the corporate tax rate in Union Budget 2018-19, to be presented to Parliament on February 1: Expert

Updated On: 02 Jan 2020 | 8:12 PM IST

CBDT relaxes norms for MAT on firms facing insolvency

This has been done to minimise the genuine hardships faced by such companies, said the Central Board of Direct Taxes (CBDT)

Updated On: 02 Jan 2020 | 8:12 PM IST

Stressed asset buyers may get relief from competition law, MAT

Govt-appointed committee planning to recommend amendments to bankruptcy code to make this happen

Updated On: 02 Jan 2020 | 8:13 PM IST

I-T Act to be amended on MAT, says revenue secretary

Updated On: 02 Jan 2020 | 8:15 PM IST

Uncertainty over MAT on foreign firms without place of biz

Clarity on whether the proposals will also extend to foreign firms without a PE in India will depend on fine print of actual amendments of I-T Act provisions

Updated On: 02 Jan 2020 | 8:14 PM IST

Foreign companies without permanent establishment in India should not attract MAT: A P Shah

Itnerview with Former law commission chairman

Updated On: 02 Jan 2020 | 8:14 PM IST